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AT&T takes $1 billion health care reform charge

By Annalyn Censky, staff reporterMarch 26, 2010: 4:02 PM ET

NEW YORK (CNNMoney.com) -- AT&T said Friday it will take a non-cash charge of about $1 billion for the current quarter in anticipation of costs resulting from the health care reform measure signed into law this week by President Obama.

In a filing with the Securities and Exchange Commission, the telecommunications provider said the charge is related to a part of the law that eliminates tax deductions for Medicare prescription drug subsidies.

When the Medicare prescription drug program was passed in 2003, it included a provision granting employers a subsidy of 28%, or up to $1,330, per retiree for prescription drug costs.

Even though the federal subsidies were already tax free, employers could still write them off on their income taxes, in addition to writing off their own contribution. The new law, signed by Obama on Tuesday, maintains the subsidy as a tax-free incentive to employers, but prohibits them from taking it as a deduction.

White House spokesman Robert Gibbs defended this change on Thursday, explaining that the previous law essentially allowed for two deductions - one for the employer's own contribution, and another for the tax-free federal subsidy.

"This bill, our bill simply closes the loophole and allows them to deduct that money one time by not counting it as income," Gibbs said.

Under the tax change, which Gibbs said won't go into effect until 2013, employers will still be able to deduct their own contributions to prescription drug costs.

AT&T (T, Fortune 500)'s news comes on the heels of similar announcements by Deere & Co. (DE, Fortune 500)and Caterpillar Inc. (CAT, Fortune 500) this week. Together, the industrial equipment companies expect to post $250 million in charges as a result of the smaller tax deductions.

In a letter to Congress in December, Deere, Caterpillar and eight other companies warned legislators of the cost increases. Boeing Co., Con-Way Inc., Exelon Corp., Navistar Inc., Verizon Communications Inc., Xerox Corp., Public Service Enterprise Group Inc. and MetLife Inc. were included in the letter.

AT&T is also reviewing its health care benefits offered to both current employees and its retirees, the company said in its SEC filing.